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Kamlesh Dangayach Prop. Green Fire Versus Asstt. CIT, Circle-1, Jaipur

2012 (5) TMI 743 - ITAT JAIPUR

Levy of penalty u/s. 271(1) (c) - higher g.p. rate - Held that:- For both the years, the clear finding by the tribunal for sustaining a higher g.p. rate is to plug a possible leakage of revenue on account of unverifiable purchases; the assessee having exhibited the purchase of goods against its unverifiable purchases. The assessee can under the circumstances only be considered as having substantiated it explanation, if not to the hilt, substantially so, with all the facts material to the computa .....

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o plug a possible leakage of revenue on account of unverifiable purchases, proves the assessee’s claim of absence of any charge of having not disclosed its correct income, and of having a plausible explanation in support of the returned income. The same, though, would not prove its case as regards the claim of expenditure (or income), yet remains a valid claim for the purpose of levy of penalty. No penalty is exigible in the instant case - Decided in favour of assessee. - I.T.A. Nos. 18 & 19/JP/ .....

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e Asstt. CIT, Circle- 1, Jaipur for the assessment years (A.Y.) 2004-05 and 2005-06 vide separate penalty orders, again of even date, i.e., 29-012010, at the minimum rate of one hundred per cent. of the tax sought to be evaded, being at ₹ 1,74,772/- and ₹ 1,70,600/- for the two consecutive years respectively. 2.1 The facts and circumstances for the two years, as also the issue/s arising in appeals, being the same, the appeals were heard together, and are being decided by a common, co .....

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cutive years respectively. The same being drastically below the g.p. rate of 13.99% disclosed for the assessment year 2003-04, the assessee was called upon to explain the decline during the course of the assessment proceedings. No justifiable reasons for the huge decline in the g.p. rate were, however, put forth by the assessee. On an examination of the books of account, it was noticed that the assessee had shown purchases in its accounts from, among others, twelve concerns, and which were found .....

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ties, but he also reported the non-existence of the said parties at the given addresses. The assessee had also not maintained any stock register or quantitative details in respect of its trading transactions. Moreover, the assessee had claimed deduction for ₹ 32.87 lacs on account of wages, for which no proper details/vouchers could be produced for verification. In view of the same, invoking the provision of section 145(3) of the Act, the AO rejected the assessee's book results, and as .....

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ee secured substantial relief. The tribunal directed for application of a g.p. rate at 4.5% as against declared g.p. rate of 3.83% and 4.10% for the two consecutive years respectively, thereby sustaining a net trading addition, i.e., net of relief u/s. 80HHC, at ₹ 5,29,610/- and ₹ 5,06,686/- for the two consecutive years respectively vide its combined order dated 26-06-2009, deciding the cross appeals by the assessee and the Revenue (in ITA Nos.1018 & 1212/JP/2008 - Assessee and .....

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the possible leakage in his regard, we are of the view that application of g.p. rate at 4.50% on the declared sales will met the end of justice keeping in mind the overall facts and circumstances of the present case especially the showing of the substantial increase in turnover during the year in comparison to the last year. We thus while setting aside orders of the lower authority for A.Y. 2004-05 direct the AO to apply g.p. rate of 4.50% on the declared sales to estimate the profit and the re .....

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unverifiable purchases, it would be reasonable to apply g.p. rate of 4.50% on the declared sales. The AO is directed accordingly to work out the resultant trading addition during the year. The Ground No. 2 of the appeals preferred by the assessee is thus partly allowed and the related ground of the appeals of the Revenue is rejected. 2.2 The quantum proceedings have concluded thus, the AO proceeded with the penalty proceedings initiated at the time of framing the assessment. The assessee relyin .....

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71(1)(c) read with Explanation 1 thereto, would abate. Where the assessee is unable to substantiate its disclosed profit, and the trading result is found to be under-reported, the inference as to concealment of, or furnishing inaccurate, particulars of income could certainly be drawn and, indeed, would follow, given the mandate of Explanation 1 to the provision. In fact, taking such a view as being urged, the assessee may well not produce the books of account or, rather, even not maintain them o .....

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llahabad High Court (reported at 277 ITR 92). The decision by the hon'ble jurisdictional high court in the case of Shiv Lal Tak vs. CIT, 251 ITR 373, cited by the assessee in advancing its case, was discussed and found distinguishable. The assessee in that case was a building contractor, and being unable to substantiate its books of account, gross profit addition was sustained. The hon'ble court held that since no deliberate false entry had been found to have been made in the books of ac .....

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ntiate her claim of the impugned purchases as genuine, leading to the enhancement in income in assessment. Aggrieved, the assessee is in appeal. 3. We have heard the parties, and perused the material on record. 3.1 We may firstly wish to clarify the law in the matter; the assessee's sole case being that the addition as finally sustained in its case being on the basis of an estimate, no penalty u/s. 271(1)(c) of the Act could at all be levied for that reason. We are unable to subscribe to suc .....

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nstant case only follows the rejection of the books of account, having been found as not reliable. The case law in the matter is legion [viz. 291 ITR 202 (Guj.); 238 ITR 415 (Guj.); 232 ITR 588 (All.); 146 ITR 492 (All.); 219 ITR 157 (Mad.); 205 ITR 607 (MP); 171 ITR 405 (Patna)]; the same in fact follow the trite law in the matter, as explained time and again by the apex court, as in the case of CIT v. Mussadilal Ram Bharose, 165 ITR 14 (SC); CIT v. Jeevan Lal Shah, 205 ITR 244 (SC); B.A. Balas .....

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being subsequent, that the onus was on the assessee, which it had failed to discharge as no explanation had been given before the assessing authority. Similar was case in the case of Vidhya Shankar Dixit vs. CIT (2005) 277 ITR 285 (All.), where the penalty was again in respect of confirmed disallowance on account of unverifiable purchases. Clearly, therefore, it cannot be said that merely because the enhancement in income in assessment is sustained on account of applying an estimate, no penalty .....

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tands rightly distinguished by the Revenue. The same is for assessment year 1978-79, with the law amended since, by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 w.e.f. 10-09-1986, omitting the relevant proviso, though incorporating the same in almost in the same form by way of Clause B to Explanation 1 to section 271(1)(c) of the Act, effectively therefore shifting the onus from the Revenue to the assessee. The same, thus, would not be of assistance to the assessee. 3.2 H .....

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based on an estimate or otherwise, the question thus boils down to the facts, i.e., the extent to which the assessee is able to substantiate its case, or the reliability of evidence available on the basis of which a higher estimate has been upheld. This is as plausible explanation saves penalty, and more cogent the reasons and more definite the materials supporting the higher estimate, the weaker - generally speaking - the assessee's case for the non levy of penalty on account of an additio .....

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2004-05 and 2005-06 respectively), the assessment though initially made at 11% in view of the past history, stood finalised only at 4.50%. Even so, the penalty having been levied only with reference to the sustained difference, we are not suggesting and do not imply that penalty could not levied in view of the low difference, which per se it can be, signify as it does the volume of unexplained difference. What is paramount, and of essence, is the finding of the fact supporting the higher estima .....

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